The present invention is related to credit risk management, and more specifically to automated credit risk management.
The process for providing a loan to an individual can be fairly simple. The individual is analyzed and rated to determine if qualified for the loan, collateral for the loan is identified and provided, and the individual may then be given the loan. Currently, it is common that collateral available for securing loans may be shared to cover multiple loans for one or more individuals. With loan sharing of collateral, two or more loans may go against a single form of collateral or to go against shared multiple forms of collateral. Therefore, for example, one loan may be covered by two forms of collateral or two loans may be covered by the same collateral. The use of liquid collateral in the form of securities readily traded on an acceptable national exchange can create operational risk in terms of documentation requirements, monitoring collateral values, regulatory reporting and prompt/consistent enforcement of the financial institution polices and procedures. Marketable Securities loans are also subject to market risk. Factors considered in assessing market risk may include trading volume, price volatility, share price, event risk, market movement, analyst option, Kealhofer McQuown Vasicek (KMV) score, industry analysis, impediments to liquidating securities (i.e., control and restricted stock), and time required to liquidate.
Currently, a variety of manual approaches are being employed to mitigate risks associated with collateral allocation, liquidation, release control, control and restricted stock (Rule 144 & 145) and concentrated positions in relation to loan and collateral portfolio monitoring. One common approach includes manually copying or entering data into a variety of worksheets from various data sources, and applying formulas to determine the outcome under various and regularly changing conditions. This is a manual process and includes the use of a variety of spreadsheets set up for use with a variety of collateral and loan configurations. This process takes several days to complete and is prone to error.